Will the Carbon Border Adjustment Mechanism Impact European Electricity Prices? A GNN-Based Network Analysis
For policymakers and energy market analysts, this provides a dynamic analysis of CBAM's cross-border spillover effects on electricity markets.
The paper develops a spatio-temporal GNN framework to analyze how the EU's Carbon Border Adjustment Mechanism (CBAM) affects electricity prices and carbon intensity across eight European countries, finding that low-carbon countries may see price decreases while high-carbon countries face rising costs.
The European Union's Carbon Border Adjustment Mechanism (CBAM) creates a complex challenge for the interconnected European electricity market. Traditional static analyses often miss the cross-border spillover effects that are vital for understanding this policy. This paper addresses this gap by developing a spatio-temporal Graph Neural Network (GNN) framework. It quantifies how CBAM affects electricity prices and carbon intensity (CI) at the same time. We modeled a subgraph of eight European countries. Our results suggest that CBAM is not just a uniform tax. Instead, it acts as a tool that transforms the market and creates structural differences. In our simulated scenarios, we observe that low-carbon countries like France and Switzerland can gain a competitive advantage. This suggests a potential decrease in their domestic electricity prices. Meanwhile, high-carbon countries like Poland face a double burden of rising costs. We identify the primary driver as a fundamental shift in the market's merit order.